Skinny is cheaper. The
cheapest plan is NZ$40 a month. At NZ$85 Spark’s own-brand
fixed wireless product is more expensive. It even costs more
than low-end unlimited fibre plans. In contrast, Spark’s
Skinny brand has a $68 unlimited fibre plan.

Customers
choosing Spark fixed wireless broadband over a fibre plan
get inducements including a free streaming TV service but
they won’t save money.

You can be forgiven for thinking
wireless broadband is a new idea. It isn't. The technology
is over a decade old. However, things have changed since it
first appeared.

Today's 4G mobile technology has matured
to the point where a carrier can offer an attractive enough
product to compete with fixed-line broadband in some
circumstances.

Extra spectrum makes fixed wireless
broadband work

Spark picked up extra spectrum in the
2016 700 MHz auction. This gives the company enough capacity
to make its fixed wireless practical and attractive to
customers.

When Spark first started selling fixed wireless
services to rural customers, they could see speeds in the
region of 80 Mbps. That is comparable with fibre. Indeed, it
is faster than the basic UFB fibre products on offer.

Few
of today's customers will see speeds like those enjoyed by
the first to climb on board Spark's RBI service. While
wireless has many admirable qualities — more about them
later — it has a big weakness. Wireless spectrum is shared
by all the users.

In practice this means wireless networks
can get congested. As more customers in an area served by an
antennae sign for fixed wireless services, the average speed
per user drops. This can happen at any moment, but is more
noticeable at busy times.

This speed drop can, and often
is, managed by network operators like Spark.

Dealing
with congestion

One way they can get around congestion
is to limit the number of customers connected to any
particular cell site.

Spark and Skinny are already not
accepting new fixed wireless connections in some busy areas.
Even so, congestion woes always lurk in the
background.

Another way carriers manage congestion is by
limiting the amount of data each user can download. Fixed
wireless broadband plans usually come with data caps. That
is, the amount of data you can use is rationed. At the time
of writing Skinny offers 40Gb and 100GB plans.

Data caps
are not a problem for many users. 40GB is a lot of data if
you just do mail, surf the web and watch a few cat
videos.

It is not enough data to watch a lot of high
quality streaming television.

Depending on picture quality
you might go through a gigabyte in an hour watching Netflix.
If you have a handful of family members each watching their
own streaming TV and using other online services you will
bust your cap.

With fibre you can use all the services you
like without keeping one eye on the meter. Many regard
removing that worry as well worth paying for.

Next
wireless broadband generation

Over time wireless speeds
and capacity will improve as carriers like Spark invest in
new wireless network technologies. Spark already has many
sites described as 4.5G. It adds more every month.

This
mobile technology generation can be improved a few more
times. We can, in theory, go all the way to 4.9G, although
carriers don't use that term when talking to the
public.

In two to three years from now the next generation
of mobile technology, 5G, will arrive in New Zealand in
earnest. You can expect speeds to be faster again and
individual cell sites should be able to handle more
data.

The move from 4G to 5G is neither cheap or
straightforward. Expect disruption.

Spark pushes fixed
wireless broadband harder than the other two mobile network
companies. In part that’s because it wants to get the most
from its investment in spectrum.

There’s another reason.
Every service provider, including Spark, has to pay a fibre
company around $40 each month for a wholesale fibre
connection. Most fibre subscriptions sell for between around
$70 and $100 a month. The wholesale cost doesn’t leave
much room for margin.

When Spark sells a fixed wireless
subscription, it gets to keep the entire $85. There are
costs, but the gross margin is far better.

Spark told
shareholders its margins have improved since it moved around
100,000 customers onto fixed wireless.

At the same time,
Spark gets to retain control. It manages fixed wireless
connections all the way from a customer’s desk to the big
internet hubs. Having this control, known in the industry as
vertical integration, means it stays in control.
Phone companies like vertical integration as it helps them
maintain margins.

More customers, more
towers

There’s a limit on the number of fixed wireless
broadband customers Spark can support with today’s
technology and the existing tower network. That will change
over time, but it’s unlikely Spark could add a further
100,000 wireless customers in the next 12 months without
building new towers. Estimates vary on where it can go at
this stage.

If Spark pushes too hard its mobile phone
customers will notice a degraded service. Still there is
some room for growth on the network.

Meanwhile Spark has
accelerated its network upgrade plans. It is confident the
investment in 4.5G and later upgrades will pay dividends.
One challenge will be meeting customer demands for higher
data caps as they consumer ever more services.

Spark sees
wireless technology, both fixed and mobile, as the way of
the future. It's arguably the right strategy for a large
telco with a mobile network, deep pockets and substantial
spectrum holdings. But wireless isn't the only path to the
future.

For now, the wireless first strategy is working
for Spark. Its shareholders like the higher margins. They
may be less delighted with the strategy when they see the
cost of rolling out a 5G network and buying more
spectrum.

Contact Bill Bennett

2018 has been quite a year for Scoop. We are so thrilled to have successfully met the funding target for the first stage of the ‘Scoop 3.0’ plan raising $36,000. This means we can now proceed with the planning phase for the delivery of this bold vision for a community-owned, participatory, independent newsroom... More>>

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